Rebuilding Agricultural Subsidies from the Ground Up

In a recent article in Food Policy, “Taking stock of Africa’s second-generation agricultural input subsidy programs,” Thomas Jayne, Nicole Mason, William J. Burke, and Joshua Ariga evaluate the success of input subsidy programs (ISPs) in Africa. Jayne and his co-authors find that ISPs, government programs that subsidize the price of fertilizer for farmers, have short-term benefits for some farmers, but weakly contribute to long-term economic development.

According to the article, recent commitments by African countries to re-introduce ISPs in the mid-2000s accounted for up to 60 percent of governments’ expenditures on agriculture each year. The authors conclude that, while ISPs have raised national food production quickly, the intended effects on national food production and improved farmer income have been smaller than expected.

The article outlines suggestions for subsidy programs – more effectively targeting farmers who have not purchased fertilizer in prior seasons, enhancing program flexibility, and implementing other programs that would raise the effectiveness of ISPs.

The authors have received numerous awards for their work on input subsidy programs in sub-Saharan Africa. Thomas Jayne is University Foundation Professor of Agricultural, Food, and Resource Economics at Michigan State University and Co-Director of the Alliance for African Partnership. Nicole Mason is an Assistant Professor in the Department of Agricultural, Food, and Resource Economics at Michigan State University. William J. Burke is an Economic Research Consultant for Agricultural and Food Policy Consulting and a member of the Food Tank Board of Directors. Joshua Ariga is a Senior Economist at the International Fertilizer Development Center.

Food Tank talked with the authors to discuss the benefits of input subsidy programs and changes that can contribute to economic development and farmer welfare in Africa

Food Tank (FT):The article lists a number of benefits resulting from ISPs such as boosted agricultural productivity and income, lowered food prices, and widened knowledge about fertilizers. However, by the 1990s, many agreed that the costs of ISPs outweighed the benefits. What costs especially contributed to this offsetting of ISP benefits?

Authors: ISPs certainly have important benefits. They can raise food production and farmers’ incomes quickly in the years they’re distributed. However, the evidence indicates that these benefits last only as long as the subsidies continue. The costs of implementing subsidy programs can be massive. The Government of Malawi spent US$150 to $250 million each year on subsidies for the past decade – accounting for about half of all government agricultural expenditures. Most African governments could have achieved higher levels of agricultural productivity and greater reductions in poverty if they had reallocated funds from ISPs to other programs such as crop research and development, farmer extension and education programs, and physical infrastructure to improve farmers’ access to agricultural inputs and commodity buyers.

ISPs can also erode commercial markets for inputs. Our article finds that ISPs, by distributing free or heavily-subsidized fertilizer to farmers, undercut the commercial market for fertilizer in many cases. Private companies were more focused on competing with each other in the political sphere for government contracts than competing in the commercial markets, often opening the door to corruption. While the erosion of commercial fertilizer delivery channels do not show up on government balance sheets, they take a huge toll on farmers.

FT:According to the article, data consistently shows that subsidy programs often distribute fertilizer to beneficiaries who regularly purchased fertilizer in the past. What alternative programs can target farmers who have not purchased fertilizer in the past and represent certain demographics, effectively redistributing income to more recipients?

Authors: Governments run the risk of not adding to total national fertilizer use when they provide subsidies mainly to farmers who formerly bought fertilizer from the market. A recurrent finding of our study is that when subsidized fertilizer was given to farmers who typically purchased fertilizer, they no longer purchased as much as before, if any, and commercial fertilizer distributors experienced an erosion of their markets. An exception was the National Agricultural Input Voucher Scheme (NAIVS) in Tanzania, where most maize growers who received NAIVS vouchers had not used fertilizer in the past five years, perhaps due to the fact that fertilizer use was extremely low prior to NAIVS. Therefore, it was much easier for ISPs to reach farmers who hadn’t used fertilizer in the past in Tanzania, compared to in a country like Kenya where a higher proportion of farmers purchased fertilizers from the market.

Other countries establish criteria for their ISPs related to farm size or the farmer’s purchasing power, but enforcement of such eligibility criteria is difficult. Giving preference to female farmers (who normally have less access to commercial markets for inputs) is one criterion that seems enforceable and could help improve the impacts of fertilizer subsidy programs on total fertilizer use. This is also the case for households with smaller farm sizes.

FT:According to the article, Malawi boasted a “miracle” case of success, especially during the beginning of its ISP program. Is Malawi’s ISP program unique?

Authors: In its first full year of implementation, favorable weather and the subsidy program both contributed to raising national maize production. The country even exported maize for the first time in decades, giving the appearance of a uniquely successful program. Several prominent economists and politicians rushed to pronounce the program a huge success, but to our knowledge, evidence of its impacts has been less conclusive. Over time, many applied studies on Malawi’s ISP give decidedly mixed reviews. Most recently, three of the last four maize harvests in Malawi were below average and many of the nation’s poor have been reliant on food aid. During this time, weather has been less favorable and fall armyworm infestations have erupted, and neither of these problems can be alleviated through fertilizer subsidies. Even though the FISP continues to take a huge portion of the government’s agricultural budget for its fourteenth year, Malawi remains one of the poorest and food insecure countries in the world. Countries such as Ghana, Ethiopia, and Rwanda devoted larger shares of government agricultural budgets to public investments and benefit from greater long-term impacts, including attracting new private investment.

FT: Can ISPs accompany sustainable agricultural practices?

Authors: Greater use of improved seed and fertilizer will not be enough to achieve profitable, productive, and sustainable farming systems in most parts of Africa. Sustainable soil fertility management practices that incorporate inputs tailored to specific micro-environments are often required to make the seed and fertilizer package profitable and sustainable.

Our review indicates that ISPs to date have had little impact on natural resource management practices at best and negative effects at worst. For example, evidence from Zambia suggests that the country’s ISP reduces fallowing and crop diversity, while incentivizing continuous maize cultivation on the same plot over time; monocropping and continuous cultivation reduce soil fertility and undermine the potential for yield gains in the future. These programs give much attention to giving fertilizer to farmers and little attention to enabling them to use fertilizer efficiently. A more holistic approach is needed to sustainably raise agricultural productivity in Africa.

Authors: In theory, ISPs could have a priming effect on demand for commercial fertilizers, where farmers using subsidized fertilizer learn of its benefits and start buying them on their own because of their new knowledge or their increased crop income. There is very little evidence, however, of ISPs having actually promoted sustainable commercial demand for fertilizer. We highlight a few reasons for this breakdown. First, if subsidies are reaching farmers who previously used fertilizer, subsidies are more likely to displace commercial demand than they are to prime it. Second, the knowledge generated by subsidizing inputs is not new to many farmers – most have had some exposure to the capabilities of inorganic fertilizer and improved seed, which are very often the same inputs that were previously subsidized in the 1980s. Finally, after farmers “graduate” from the subsidy program, there’s no guarantee that they would consider fertilizer to be a good investment at the higher commercial prices. While there may be a compelling role for modified input subsidy programs in certain contexts, transformational change in Africa is more likely to come from helping farmers to increase the efficiency with which they use fertilizer through public investments in agricultural science research and robust extension services, as well as investments in physical infrastructure to encourage commercial investment in fertilizer supply systems, and a favorable and predictable policy environment.

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Katherine Walla is Food Tank’s Newsdesk Coordinator and Intern Supervisor. She graduated from Georgetown University’s School of Foreign Service studying food justice and global hunger. Katherine has worked with nonprofit institutions and student organizations related to international affairs and social justice, and is also a neighborhood bartender!